Staring at a stagnant future-I: ONGC will have little to show in the next two years

Jun 02:
Even as crude production remained staganant, ONGC’s gas output seems to be looking up.8Crude oil production increased marginally YoY but remained flat in the last quarter of 2016-17 at 5.6 MMT for ONGC and 0.8 MMT for PSC JVs.8However, natural gas production increased 13.4% YoY and came in at 5.7 BCM for ONGC and 0.3 BCM for PSC JVs. 8The company expects to maintain growth in production after the commencement of gas production from fields of C26, Daman, Vashishtha, Cauvery and Rajahmundry along with a hopeful ramp-up in oil production from redevelopment projects in the Mumbai offshore area (north & south), associated oil from Daman and Vasai (East) which will make up for the loss in production from its other ageing fields. 8OVL’s production also went up in FY17 with the production of 12.8 mmtoe of oil and gas mainly from the acquisition of 26% stake in Vankor oilfield in Russia. But the cost dynamics of this investment will depend on how oil prices will behave in the future.8On the positive side, given that crude prices are unlikely to see a major increase, and the advent of alleviating government policies such as deregulation of diesel prices and a hike of 25 paise per month in the kerosene prices by the government and scheme of direct benefit transfer (DBT) for LPG, the net subsidy share of ONGC will remain at sustainable levels of around Rs 100 crore in the next two years.8The bottomline, however, is that for ONGC, there is nothing really dramatic to look forward to. It is going to be a boring a predictable couple of years before new gas comes in from its KG Basin developments. Here again, if there are delays and cost overruns, the IRRs will get badly impacted.Click on Reports for more.